Bybit recently released a report analyzing how the Bank of Japan (BoJ) may adjust its monetary policy in the context of Japan's economic transformation by 2025, which will also increase the risks of yen arbitrage trading. So, how should we respond to this challenge?
Looking back at history, for the past thirty years, the Bank of Japan has maintained an ultra-loose monetary policy, promoting economic growth through a zero or negative interest rate environment. This has made arbitrage trading a popular strategy, where traders borrow yen at low or zero interest rates to invest in assets denominated in other high-interest currencies. As a result, the yen has been favored by traders as a major funding currency in the forex market.